Restructuring the Bogor Goals

Chen Sheng Ho

Introduction

An important theme of 2013 APEC is attaining the Bogor Goals. There exists the need to understand the meaning of the Bogor Goals that was developed in 1994. The purpose of this article is to restructure the Bogor Goals. The article will review some reports about the Bogor Goals as well as will analyze the Bogor Declaration. Finally, a suggestion for revising the Bogor Goals will be given.

Literature Review

An important report that APEC has generated to examine the progress towards the Bogor Goals is: "The Report on APEC's 2010 Economies' Progress Towards the Bogor Goals." According to the Report, the assessment focuses on 13 APEC industrialized and developing economies. There are five industrialized economies consisting of Australia, Canada, Japan, New Zealand and the United States. The eight developing economies that volunteered to be included in the assessment are Chile; Hong Kong, China; Korea; Malaysia; Mexico; Peru; Singapore and Chinese Taipei.

The assessment states that the 13 economies have made progress toward achieving free and open trade and investment but their work is not finished. In addition, the report mentions that APEC must continue to be ready to address new challenges, since the international economy is evolving and incorporating new technologies and new ways of conducting business (APEC 2010).

The APEC PSU published a report in 2012 called: "APEC's Bogor Goals Progress Report." The main points of the Report are that APEC members have continued to make progress, since the 2010 assessment. However, there is room for APEC to make further advancement. In the period of 2008-2010, APEC average tariff rate decreased from 6.6% to 5.8%. The report states that trade facilitation, services and investment have become major areas that APEC can focus on (APEC PSU 2012).

Another significant report on the Bogor Goals is: "Asia Pacific Economic Cooperation: Attaining the Bogor Goals; then towards a Seamless Regional Economy." The Report states that APEC has made substantial progress towards free and open trade and investment. APEC can now define Bogor Goals that are ambitious as well as attainable by 2020. There is an opportunity for APEC to show that the Asia-Pacific region is the most open region through the Bogor Goals. It is suggested that APEC could ensure that almost 100% of the value of trade in goods faces no tariffs or quantitative restrictions in the APEC region. In addition, APEC could support free trade in services. The Report also suggests that the development of an attainable form of the Bogor Goals could be complemented with the long-term objective of a seamless regional economy. The result is the creation of transport and communications networks in the APEC region. International commerce will then become cheaper, easier and faster (Elek 2012).

Analyzing the Bogor Goals

After reviewing the reports on the Bogor Goals, it can be said that the Bogor Goals remain the most important goals for APEC to achieve. An important feature of the Bogor Goals is the existence of deadlines for achieving the Bogor Goals, 2010 for developed economies and 2020 for developing economies. Since developed economies have more work to do following the 2010 assessment, the current final deadline is now 2020 for all APEC members. The 2020 deadline is clear and without controversy. However, the meaning of the Bogor Goals is not as apparent. There is room for APEC to define the Bogor Goals in a clearer manner.

The Bogor Goals are about the achievement of free and open trade and investment. An important question is: What is the degree of free and open trade and investment acceptable to APEC? For example, free trade can mean zero tariffs. Free trade can also be defined as freer trade. With a clearer meaning, it will be easier for APEC to state that the Bogor Goals have been achieved when the deadline of 2020 arrives. Essentially, the Bogor Goals will then not be a moving target, as is the case at the moment.

For the purpose of clarifying the meaning of the Bogor Goals, the most significant step to be taken is to examine the 1994 APEC Leaders' Declaration, which is also known as the Bogor Declaration. APEC Leaders state in the Declaration that they are meeting together for the purpose of setting the future path of APEC's cooperation. The outcome is the advancement of economic growth in the Asia-Pacific region as well as throughout the world. The strengthening of economic cooperation will be based on equal partnership, shared responsibility, mutual respect, common interest, and common benefit. Furthermore, APEC will take the lead to enhance the multilateral trading system, trade and investment liberalization in the Asia-Pacific region, and Asia-Pacific development cooperation. Since the open multilateral trading system is the foundation of APEC's economic growth, APEC will seek to take the lead in advancing the multilateral trading system (APEC 1994).

In order to enhance trade and investment in the Asia-Pacific region, APEC Leaders agree to accept the long-term goal of free and open trade and investment. The goal will be reached through the reduction of barriers to trade and investment. Additionally, the promotion of free flow of goods, services and capital among APEC economies will also be pursued. This goal will be achieved in a manner that is consistent with GATT, so that APEC's actions will lead to more liberalization at the multilateral level (APEC 1994).

APEC Leaders agree that APEC should achieve the goal of free and open trade and investment in the Asia-Pacific region by the year 2020. Since APEC economies have different levels of economic development, the industrialized economies will achieve free and open trade and investment by 2010 and developing economies will do so by the year 2020 (APEC 1994).

In addition, APEC Leaders emphasize that they strongly oppose the creation of a trading bloc that is inward-looking and that prevents the pursuit of global free trade. APEC will support free and open trade and investment in the Asia-Pacific region in a way that strengthen global trade and investment liberalization. Therefore, the result of trade and investment liberalization in the Asia-Pacific region will lead to the lowering of barriers in APEC and also between APEC economies and non-APEC economies. APEC will pay attention to its trade with non-APEC developing economies to make sure that they will also gain benefit from APEC's trade and investment liberalization. APEC's efforts in trade and investment liberalization will conform to GATT/ WTO rules (APEC 1994).

Revising the Meaning of Bogor Goals

The APEC Leaders had made the right decision in 1994 to announce the birth of the Bogor Goals. The reason is that it has brought significance to the existence of APEC. As a result, APEC's work has focused on attaining the Bogor Goals. The APEC way of formulating and implementing actions through consensus building and voluntarism have been criticized for being ineffective in supporting the achievement of the Bogor Goals. However, APEC has been able to exist because the APEC way leads to harmonious outcomes. For APEC members, APEC complements the trade liberalization work being undertaken in the WTO. With the approaching 2020 deadline for reaching the Bogor Goals, APEC may want to clarify the Bogor Goals. In particular, Bogor Goals can be revised to mean the attainment of freer and more open trade and investment. The emphasis is on progress by every APEC member as well as by APEC collectively.

Thus an updated definition of the Bogor Goals will be to revise the ideas stated in the 1994 Bogor Declaration (APEC 1994) to become the following main points: • Achieve freer and more open trade and investment by 2020 for all APEC economies. • Advance the WTO's multilateral trading system. • Oppose the creation of a close trading bloc that does not promote global free trade. • Ensure that the promotion of trade and investment liberalization in APEC will not only reduce barriers in the APEC region but will also lower barriers between APEC and non-APEC economies.

References

1. APEC. 1994. "1994 Leaders' Declaration." APEC Secretariat. <http://www.apec. org/Meeting-Papers/Leaders-Declarations/1994/1994_aelm.aspx>

2. APEC. 2010. "The Report on APEC's 2010 Economies' Progress Towards the Bogor Goals." APEC Secretariat. <http://www.apec.org/About-Us/About-APEC/ Achievements-and-Benefits/~/media/Files/AboutUs/AchievementsBenefits/2010/ bogor_Report_AMM20101110.ashx>

3. APEC PSU. 2012. "APEC's Bogor Goals Progress Report." APEC Secretariat. <http://publications.apec.org/publication-detail.php?pub_id=1308>

4. Elek, Andrew. 2012. "Asia Pacific Economic Integration – Attaining the Bogor Goals; Then Towards a Seamless Regional Economy." APEC Secretariat. <http:// mddb.apec.org/Documents/2012/SOM/ISOM-SYM/12_isom_sym_003.pdf>

Towards Peace, Stability and Sustainable Economic Development in the Asia Pacific Region

Sergey Lavrov

           Recently, we have witnessed deep geopolitical shifts that fundamentally changed the global landscape. Against the backdrop of global transformation processes, the role of Asia Pacific region is rising as a significant factor that is determining now and will most likely determine the mainstream of international developments in the nearest future, becoming an influential player of emerging polycentric world order architecture.

           In the present turbulence of world economy and finance, Asia Pacific states despite the fact that their high growth rates are slightly slowing down will continue to demonstrate the energy of growth and remain the locomotive of global progress. Today the Asia Pacific is a vital center of economic development and progressive political influence as well as an attractive area for cooperation, a cross point for interests of key stakeholders and major multilateral institutions.

           Certainly, Russia being an integral and organic part of the region is also strengthening its presence here. For us this is a matter of principle. Our greater involvement in regional community affairs is a major precondition for securing continued national development as well as social and economic rise of Siberia and the Far East.

           It is our clear commitment to ensure strength, stability, security and prosperity of the Asia Pacific. Intensification of the "Eastern" track policy, development of regional bilateral ties, participation in inter-governmental structures are among Russia's foreign policy priorities. This has been noted in the new edition of the Foreign Policy Concept of the Russian Federation signed by the President of the Russian Federation Vladimir Putin on February 12, 2013.

           Russia's policy in the Asia Pacific is deliberate and focused, aimed at truly stable balance of power and elaboration of cohesive regional agenda. Implementation of these goals is based on the solid foundation of our bilateral relations with regional countries, many of which are filled with time-tested friendship and multifaceted cooperation. Our contacts with China, India and Vietnam have been upgraded to strategic partnership. Ties with ASEAN states, the US, Japan, South Korea, New Zealand, Australia, Canada are also developing on a strong and mutually beneficial basis.

           The increasing engagement of Russia with inter-governmental organizations and dialogue mechanisms – Shanghai Cooperation Organization, BRICS forum, ASEAN Regional Forum, Conference on Interaction and Confidence-Building Measures in Asia, Asia Cooperation Dialogue, Russia-India-China format, East Asia Summit and Asia-Europe dialogue – is of key importance for us. The prospect of developing productive interaction between these structures is an integral part of the long-term task to shape a strong regional and international network of relations.

           The logic of Russia's foreign policy in the Asia Pacific proceeds from the recognition of the fact that creation of an advanced environment of international relations in the region in line with modern realities is of crucial importance. Such a configuration must simultaneously provide broad opportunities for the promotion of multilateral trade, economic and investment cooperation, eliminate existing multi-dimensional security challenges, prevent the emergence of new threats and serve to form an integrated economic and political space.

           Asia Pacific needs a system to ensure equitable cooperation, genuine balance of power and harmony of interests. It is necessary that every country along with other partners could participate in drafting a new agenda for regional relations and in resolving urgent development problems. We advocate a non-discriminatory regional order without any imposition of unilateral approaches, any division into leaders and supporters but with interstate communication based on trust and mutual respect.

           Asia Pacific countries have made an outstanding pace in this direction. The Foreign Ministers of East Asia Summit member-states at their last meeting decided to launch multilateral consultations on regional security. In fact, consensus was reached on the necessity to develop the most reasonable approaches to strengthen security and develop interaction, to seek arrangements on mutually acceptable rules of the game.

           Russia believes that such architecture should be based on the indivisibility of security, peaceful settlement of disputes, non-use of force or threat of force, rejection of confrontation and cooperation directed against third countries and partnership between multilateral organizations.

           In order to achieve these goals we aim to promote and strengthen economic integration with primary accent on the Asia-Pacific Economic Cooperation (APEC) forum.

           In 2012 Russia presided over the APEC forum for the first time, and according to partners' assessments, we coped quite well with this mission. The most important is that our proposed priorities, as one could say, "hit the bull's eye". Let me recall that along with traditional tasks of advancing trade, investment liberalization and regional economic integration we highlighted issues of ensuring food security, improving production and supply chains and encouraging innovative growth in the region. We also promoted cooperation in energy, health care, fight against terrorism and corruption as well as emergency preparedness, which is also important for the region. Relevant Russian proposals are under implementation.

           On the eve of the forthcoming APEC summit scheduled for October 7-8, 2013 in Bali, I believe it is necessary to point out that Indonesia – the present APEC chair – has ensured a proper succession of the forum agenda.

           Support of the multilateral trading system and attaining the Bogor Goals remain the key tasks. Development of a network of free trade agreements forms the essential basis to implement them. Russia closely tracks the dynamics of cooperation in this area which takes place within the Regional Comprehensive Economic Partnership, Trans-Pacific Partnership and other formats. We consider it important that these agreements should cope with the WTO principles and be as open as possible for all. It is counterproductive to develop free trade zones for they ignore the interests of other countries, especially regional neighbors.

           This is the approach Russia, Belarus, and Kazakhstan as member states of the Customs Union are committed to. By now, we have made significant progress in establishing a powerful regional development centre – the Single Economic Space – aiming at creating the Eurasian Economic Union by January 1, 2015 and thereby forging a link between Europe and the Asia Pacific. We believe that interaction between the Customs Union and APEC could serve our common interests.

           Russia is ready to contribute to the discussion on sustainable growth with equity proposed by the Indonesian chairmanship. We consider the course for improving financial, regulatory and other conditions for business development, especially small and medium enterprises, creating new high quality jobs, advancing infrastructure development and investments as a priority.

           An integral part of a new model of sustainable development and equitable growth is fair access for all participants of economic development, all APEC economies to physical and technological resources. Russia is ready for further cooperation in providing food security and promoting mutuallybeneficial scientific, technological and innovation exchanges. We intend to continue our live involvement in this activity.

           Issues of energy security in the Asia Pacific deserve special attention. In the framework of APEC constructive discussion pertaining to their "green" and environmental components continues. It is no doubt important. At the same time we see it is timely to bring up such issues as improving regulatory measures in energy, ensuring transparency and predictability of energy and raw-materials markets. It is necessary to diversify energy balances of regional economies, including through the increase of the share of ecologically clean natural gas and atomic energy.

           We are continuously committed to further cooperation in other areas to ensure secure development in the region, first of all in the framework of the APEC consolidated counter-terrorism and secure trade strategy. It s important to promote interaction in preventing corruption, illegal trade and other types of organized crime. We will actively participate in implementing measures on emergency agencies' personnel and equipment cross-border movement facilitation in order to eliminate consequences of natural disasters and human-made catastrophes. We expect to intensify contacts between national crisis management centers having in mind the prospect of their possible future integration into an efficient regional network.

           Another priority proposed by Indonesia for APEC – strengthening regional connectivity to create a comprehensively integrated Asia-Pacific community – also provides broad cooperation opportunities. Russia considers these tasks timely and reasonable.

           We fully support commitment to adopt practical measures to ensure transparency of economy and improve taxation systems. Russia is ready to make a substantive contribution to the framework of connectivity in the APEC region, also through implementing our initiatives in supply chain area.

           In order to ensure innovative development we are committed to actively participate in coordinating measures to facilitate cross-border movements of students, researchers and education services providers. We are also interested in discussing opportunities for regional tourist exchanges.

           This year, Russia became a full member of the successfully functioning APEC Business Travel Card system specifically set up to facilitate visas procedures. We believe that this would intensify contacts between entrepreneurs and officials responsible for economy-related matters and thus expand trade and Russia's economic cooperation with other APEC membereconomies.

           In short, Russia proposes a transparent policy and economic agenda for the region. Our goal is equal cooperation of all countries with no exception in order to strengthen peace, stability and prosperity in the Asia Pacific.

Promoting Economic Reform to boost Growth in Asia-Pacific

Wayne Chen

           After 13 years host from the last time APEC, China again demonstrates her leadership by hosting series of APEC meetings in 2014. Distinct from 13 years ago, China has passed the taking off phase of economic growth and is implementing necessary economic reform. One of the strong signals was sent by Chinese Premier Li Keqiang that China has set its GDP growth target for 2014 at 7.5%, the same as for 2013, and will keep consumer inflation at 3.5%. GDP growth is no longer the only indicator in pursuing economic prosperity, but a wide range of consideration including social inclusion, innovative growth, balancing development between urban and rural areas are obtaining their significance in economic planning.

           The evolving foci of economic policies are also reflected by the shift of economic paradigms occurred between 1978 and 2013, from Deng Xiaoping to Xi Jinping. In the Initial Senior Official Meeting held in 2013, China elaborated that by learning from China's experience, APEC needs to assist member economies initiate economic reform measures to better deal with challenges ahead. 6 profound economic and social changes were listed to be taken into account in reforming economic growth, namely, the changing model and pattern for development; new energy landscape; demographic change including population growth and aging; environmental pressure; middle class rapidly expanding; and, middle-income trap and increasing wealth gap.

           In this context, economic reform is crucial to mitigate consequences brought about by robust economic growth and reform new growth momentum for regional economic integration. Promoting Innovative Development, Economic Reform and Growth, as a result was adopted as the second priority area in APEC 2014 agenda.

Economic Reform, Innovation and Sustainable Growth

           According to the first senior official meeting held in Ninbo, APEC 2014 will promote economic reform by advancing current works on 4 domains:

1. APEC New Strategy for Structural Reform (ANSSR)

2. Innovative Growth through cooperation on science and technology, ICT, Internet Economy and Urbanization.

3. Inclusive Development including Human Resources, Food Security, SMEs, Anti-corruption, Women and Health.

4. Green Growth including Sustainable Energy, Environment, Forestry, Mining, Ocean-related issues and Disaster Management.

           ANSSR was adopted by Leaders in the Yokohama meeting in 2010. It was drafted following other related APEC programs, such as the Leaders' Agenda to Implement Structural Reform (LAISR). Structural reform cuts across variety of issues and many APEC member economies have long dealt with structural reform issues both within the APEC context as well as independently. Considering that APEC economies are very distinct in terms of economic development, and some are even considered world leaders, APEC is in a unique position to facilitate member economies to exchange experience on structural reform and narrow developmental gaps within and between economies. As a result, ANSSR calls on individual member economies to identify structural reform priorities subject to their own local context, as well as objectives, policies, and approaches to measure progress over the 2011-2015 time frame. In 2013, a mid-term progress review was conducted to facilitate knowledge exchange and information sharing. In 2014, ANSSR was even more highlighted to assist member economies ease tense occurred in the pursuit of economic growth, particularly the Middle- Income Trap.

           The Middle-Income Trap refers to the slowing economic growth, the experience of stagnation at the middle-income level before graduating to upper-income status. According to the Word Bank statistics 13 out of 101 economies enter the middle-income stage (economies with per-capita income of US $1,036-12,615) in the 1960s has only made to the high-income club 50 years later. To avoid the Middle-Income Trap and regain momentum after reaching a certain level of GDP, reform is an inevitable task for developing economies enjoying accelerating economic growth today. However, given that institutional and political contexts vary greatly from one economy to another, it is not possible to be prescriptive about what policies should be put in place. At least, there are three features of successful reform programs should be implemented as suggested by ANSSR. One is that institutional structures need to be transformed to be relatively transparent. Secondly, economies should carry out economic cost-benefit analysis, often through Regulatory Impact Assessment (RIA) extensively and continuously. Furthermore, successful structural reform institutions also refer to strong commitment to a general equilibrium point of view which means that they consider the interests of the whole economy when making structural reform recommendations, and do not become focused on the interests of producers in just one sector.

           On the other hand, to construct robust economic growth, Innovative Growth, Inclusive Development and Green Growth, the 3 attributes of APEC Growth Strategy endorsed by APEC Leaders in 2010, were highlighted as essential tasks to boost regional economic growth. In 2013, Indonesia identified that social inclusion and equality were essential for the economic integration in the APEC region. Woman economy and SMEs, in particular, were addressed intensively to empower youth, women and people in rural areas as well as foster their potentials entering the business community. In 2014, China continues the work on inclusive growth by focusing on food security and health, e.g. the 3rd APEC Food Security Ministers Meeting will be held in Beijing in September to implement the Food Security Road Map towards 2020.

           Meanwhile, innovation, as stated in the Chinese 12th 5-year plan, was long considered as crucial foundation for economic transformation from labor intensive to knowledge based growth. Such radical and necessary shift of economic pattern should be primarily fuelled by the development of science and technology. By following APEC Leaders' instruction, APEC will continue to implement the APEC Innovation and Trade Implementation Practices to provide APEC economies with a constructive roadmap for how they can advance non-discriminatory and market driven innovation policy and support APEC's agenda on next generation trade and investment. Moreover, APEC officials will also designate PPSTI to implement related projects and initiatives to materialize concrete deliverables by the end of this year.

           Considering environmental sustainability was greatly undermined in the process of industrialization, China also called for cooperation on green growth which is composed of several on-going issues, including EGS, energy security initiative, natural resource management and so on. Ministerial meetings will also be held on Mining, Energy and Ocean respectively this year.

           For the second priority area of APEC, economic reform is newly added moved from the traditional connectivity priority. Comparatively, innovative, inclusive and sustainable growth was "old" tasks involved in the APEC growth strategy. How the economic reform will link and contribute to the growth strategy need to be elaborated further and supported by more focused initiative. Similarly, cooperation between Economic Committee that is responsible for economic reform and SCE sub-fora should be strengthened to advance this priority area in a comprehensive and cohesive manner.

Global Trade System at a Crossroad

Eric Chiou

          Today's global trade system is at a crossroad. A decade-long WTO Doha round negotiation not merely reflects a significant divergence between its members, but also reveals unspoken and inherent concerns and anxiety over the consequences of further trade liberalization.

          Despite orthodox liberal economics claiming that trade liberalization facilitates the efficient distribution of production factors and increases general welfare across borders, what it does not guarantee is that no one will be hurt. Since free trade encourages competition by dismantling any form of obstacle hindering trade across borders, it is not only undermining a state's control over its economy, but also reducing the state's protection on its domestic industries. Hence, freer trade is destined to pose negative impacts on some vulnerable industries and sectors which are not so globally competitive.

          While most people probably agree that free trade and competition within a fair and open business environment will generate benefits more than detriments, however, the negative consequences of this relentless global competition have been generally underestimated and ignored. In fact, a severe global competition is likely to destroy many small but valuable local economic activities, such as small-medium enterprises (SMEs) with traditonal features, which importance may not simply be evaluated via the measure of numbers. In addition, over-emphasis of free trade also tends to generate the situation of "a winner-takes-all," suggesting that multinational corporations with the advantages of abundant capital and the economics of scale are likely to defeat other competitors and dominate or even monopolize local markets in more than one country.

          Most importantly, the devastating repercussion brought by free trade at global scale is to challenge or even weaken the legitimacy of a sovereign state, since the state may no longer be able to fulfill its promise of generating economic welfare for most people while achieving the goal of full employment for its nationals. An enlarged gap between the rich and the poor as well as deepened sense of social deprivation among the "losers" are prone to induce more uncertainty and potential unrests in a society.

          Among the people who feel frustrated and even in despair about current economic situations, young generation is likely to occupy the majority of this unsatisfied group, since it becomes more and more difficult for them to obtain job security. Even they are lucky to have jobs, but their jobs are likely to be underpaid. Hence, the gap between the expectation and the reality breeds frustration and even anger and hostility against governments, which is one of crucial reason to explain why in recent years so many students' protests and youth uprisings occur in both advanced countries and developing countries. For instance, a famous student's demonstration in the developing world in 2012 was the "Occupy the Wall Street" movement in the United States. What happened in the Middle East, such as in Egypt, Tunisia, and Libya were also notorious cases of political instability due to an unsustainable economic inequality.

          Of course, not all cases mentioned above can all be attributed to the outcome of free trade. Nevertheless, one indisputable fact is that the latest phenomena of economic globalization have aggrandized people's economic insecurity and enlarged social disparity, so as to destabilize the legitimacy of the state. If these undesirable and poisonous effects of free trade were not addressed effectively, one will not be surprised to see rampant student protests and civil riots happened in more and more countries. Hence, how to maximize the positive impacts of free trade while minimizing the negative clouts becomes a crucial issue to be considered.

          Over the past decade, the failure of the WTO multilateral negotiation shows that some states, which are reluctant or unwilling to open up their domestic markets, may be due to massive political and social costs beyond their affordability. Meanwhile, some countries are likely to foresee the dire consequences of their local industries after further liberalizing trade. Thus, the essence of free trade is the game of the strong and the demise of the weak. In other words, free trade does not provide a satisfactory resolution to the vulnerable, which may be one of its significant and fatal defects to be prevailed globally.

          Thankfully, as the most important and influential economic cooperation forum in the Asia-Pacific, APEC had an insight about the long-term prospect of free trade. Hence, in 2012, APEC leaders proclaimed that APEC's economic growth should be based on five attributes, which are balanced growth, inclusive growth, sustainable growth, innovative growth, and secure growth. Among these, inclusive growth and sustainable growth represent APEC's emphasis on the justice of income distribution as well as the balance between environmental protection and economic development. This is to say that APEC has noticed the detrimental effects of trade liberalization and intended to address these crucial issues through APEC's collective actions.

          Nevertheless, it remains questionable whether APEC has provided a compelling case in terms of resolving the drawbacks of trade liberalization, given that current emerging trade blocs divide into two approaches to deal with this issue. For instance, the US-led Trans-Pacific Partnership (TPP) tends to impose strict and intrusive rules, so as to foster more competition on the one hand, and to protect workers' rights and environment on the other. In contrast, the ASEAN approach, embodied in the Regional Comprehensive Economic Partnership (RCEP), suggests a different approach to mediate this conflict. Specificiall speaking, RCEP intends to provide more flexibility and longer period of adjustment for these states which may be unable to bear the costs of swiftly embracing full trade liberalization.

          It is too early to tell which approach could provide a more useful and promising template for the future WTO negotiations. However, the role of APEC as a forum of ideas should not be underestimated. While the global trade system may be at a crossroad, APEC could always play a critical and constructive role in inspiring new ideas and creative thinking to reduce the side effects of free trade.



The Fate of Abenomics

Tristan Liu

The Background of the Abenomics

          The so called "Abenomics" mainly refers to the monetary easing policy introduced by Shinzo Abe, the current Prime Minister of Japan. In addition to the monetary easing policy, the Abenomics also includes fiscal policies and long-term economic growth strategies to further encourage private investment in Japan.

          The detailed policies include inflation targeting at a 2% annual rate. In addition, fiscal spending will increase by 2% of GDP while the consumption tax will be gradually increasing to 7% and higher to further stabilize the fiscal soundness. Finally, it is widely believed that the long-term economic growth strategies in Abe cabinet will mostly follow the current policies of Ministry of Economy, Trade and Industry (METI). However, the participation of TPP will highlight the main growth strategy in Abe cabinet to emphasize the importance of rebuilding production and trade network with the major advanced economies such as the United States, Canada and Australia.

The reaction inside of Japan

          In order to meet the 2% inflation target, there are several steps to be completed. Firstly, the financial status of both Japanese companies and households must be improved. Secondly, higher consumption and investment sentiment must be triggered without further uncertainly on either domestic policy or international economic turmoil.

          About the current situation in the first step, many Japanese companies have already been financially benefited by the current yen depreciation. Since the cross elasticity of demand of Japanese goods to other neighbor countries in the domestic and main overseas markets is relatively small, the yen deprecation may not only further secure but also retake the once losing overseas market share. Specifically, high-tech and capital intensive industries are more likely to be significantly benefited.

          In addition, many believe that Japanese companies will be financially viable or at least improved if yen depreciated by more than 10%. As the level of depreciation has been more than 10% during the current development, many multinational corporations have been showing promising recovery in stock prices, sales and profitability, even some of them are still under loss.

          With the optimistic recovery in terms of profitability, as a result, Japanese companies and households are also starting to show better sentiment in investment and consumption. For instance, some multinational banks such as Citi Group are planning to enlarge it operation and employment in Japan for the prediction that Japanese companies may restart to need more financial services. In addition, many multinational companies such as Sharp and Panasonic have also decided to give their employees the scheduled salary increase despite the fact that these companies are still facing operating loss. With the Nikkei Stock Average exceeding the level before the collapse of Lehman Brothers, these ongoing scenarios within Japanese companies are likely to further trigger higher consumption sentiment in Japanese households. According to a survey by the Cabinet Office announced on March 12, the consumer confidence index has reached 44.3, representing the highest level for the first time in 5 years and 8 months.

The reaction outside of Japan: Will Abenomics be stopped or neutralized?

          Firstly, by taking a deep look at the Japanese CPI, one can certainly realize the difficulty of meeting the 2% inflation targeting. Among the CPI components, energy related products are the only goods most likely to experience price increases due to Yen depreciation. The price trend of other goods may still be flat or on the deflation due to serious market competition or further technology improvement and shorter product life cycle.

          Moreover, in the micro level, best strategy for Japanese companies is to moderately raise their equipment utilization rate without taking the first strike to lower prices and enlarge production scale to grasp larger market share. After all, Yen depreciation may save the Japanese companies from the profitability issues but may not help them in improving their fundamental competitiveness. Hence, the best strategy is to hold the prices and production scale at the current levels and put more focus on restructuring their business operation.

          Having realized this underlining fact, one can easily obtain a premature observation that the 2% inflation targeting will be hard to achieve unless the Japanese government levies higher consumption tax. In other words, this target setting is to grant the Abe cabinet more elasticity to conduct monetary easing.

          How do other countries perceive Abenomics? Of course, depreciated Yen is not completely welcomed by the trade competing economies such as Korea, China and even Taiwan for the reasons of possible loss on their competitive edge in the main overseas markets. However, it would also be premature to say that other trade competing economies will adopt complement strategies to neutralize the possible effects.

          The reason is that Japanese companies have not actively attempted to lower the prices and overtake the market shares from these economies. Moreover, the trade relations between Japan and other economies within APEC region are mostly the supply chain networking within the group of Japanese companies. Hence, other economies have not faced the increasing pressure from market competition that leads them to the complement monetary easing policies.

          From viewpoints of the United States, one can suspect that the tolerance of the United States on the depreciated Yen is based on the concerns of international relation issues. However, if Yen continues to depreciate, it may trigger more carry trade investments from Japan to overseas markets and become another financial and technological force to help developing American emerging industries.

          In addition, through more American companies returning to the mother country, these American manufacturers may need to concern the increasing supply chain logistic costs and therefore the depreciated Yen could play a role on keeping the costs sustainable.

The future of Abenomics: is it the cure for Japanese economy in the long term?

          Although Abe cabinet seems to gain significant success on the monetary policies, many people still believe that Japanese economy need more longterm structure changes to further guarantee the sustainable economic growth.

          Among many vital factors, the demographic aging problem seems to be on the center. There is a concern that the Japanese married couples are becoming incentive to increasing income when making decisions on child birth. Therefore, Abe cabinet may need to devote more efforts on other structure changes and incentive programs other than economic related policies. In the long term, Japanese society will also need to be more willing to adopt the role as an internationalized country and society, such as Singapore, to prevent the working population from continuous shrinking.

          Another important issues related to the international competitiveness of Japanese economy is human capital formation. The quality of young generation workers in Japan seems to be less competitive than the older one partly due to the time-contract work system. In a knowledge economy where labor productivity highly depends on experiences and learning by doing, too many young generation workers taking the time-contract jobs will lead to serious issues on international competitiveness of Japanese economy. Abe cabinet will need to work on more policies related to labor market and industrial structure reforms so as to guarantee the long-term prospects of Japanese economy.

(Dr. Tristan Liu is the Deputy Director of Research Division II, TIER)

Establishing a Healthy Intelligent Property Policy Environment for Internalization of SMEs: Taiwan’s Policy Framework

Wayne Chen

          Intelligent property (IP) is a legal concept granted legislative status to intangible invention whose production and sale can be controlled and protected. As a result, IP incorporated much in contemporary business operations, industrialization policies and rules of trade in the international sphere. IP, including trademark, copyright, and patent, formed complex ideological systems with which related regulations contribute to innovation, technology dissemination and protection of intangible properties for enterprises across states. IP policy environment led by governments is therefore critical for both local companies and the pursuit of innovative growth of the state.

          However, given its intricate character, IP is often considered as an obscure jargon to enterprises, particularly to Small and Medium Enterprises (SMEs), in routine business operations, and IP may only show its effect on business and trade once SMEs start stepping into the global arena. This essay investigates IP policies the Taiwanese government is drafting and implementing.

National Intelligent Property Strategic Framework

國家智財戰略綱領

          In past decades, the Taiwanese government has been implementing abundant IP programs focusing on promoting IP education and awareness. In 1992, the Legislative Yuan passed the Copyright Act amendments and in 1999 copyright affairs and awareness programs expanded to patent and trademark areas under the jurisdiction of Taiwan Intellectual Property Office. Since 2000, several programs were initiated focusing on information exchange, patent licensing and business consultation services by a wide range of authorities, including Industrial Development Bureau, SME Administration and Council of Agriculture. In 2008, the IP court was established to adapt the legal system to the trend of IP.

          In 2007~2011, according to the United States Patent and Trademark Office, Taiwan was the 4th country after Japan, Germany and South Korea (as shown in Figure 1) received the most patent in US which is the biggest patent market in the world. However, patent income in Taiwan was relatively low. In 2010, the patent expense was US$4,943 million and the income was US$460 million. In 2011, the gap between income and expense further widened while the former increased to US$5,788 million and the income grew to US$838 million. Low add-in value of patents granted and surge in litigation over IPs (which are always very expensive) were 2 major challenges facing both Taiwanese government and enterprises, in response, the Ministry of Economic Affairs proposed the National Intelligent Property Strategic Framework in 2011 and the Framework was approved by the Executive Yuan in 2012.

          As a high-level policy umbrella, the Framework coordinates IP policies and promotes cross-cutting cooperation among official agencies. It aims to 1. create and utilize high-end patents; 2. enhance utilization of cultural content; 3. promote agricultural patent planning, policy, and protection; 4. mobilize IPs from academia and research institutes; 5. promote IP licensing and litigation protection; and, 6. foster IP manpower. Correspondently, its bureaucratic structure involves the Ministry of Economic Affairs, the Ministry of Culture, the Council of Agriculture, the National Science Council and the Ministry of Education. Two action plans were proposed along with the Framework, namely the establishment of Taiwanese industrial IP defense and the Industrial IP planning mechanism. It was planned to set up 2 companies: an IP Management Company (or known as the IP Bank) to build a patent pool, upon which member companies could receive defensive litigation protection, and another IP Service Company invests and enhances management capacity of enterprises on IP planning.

          The 2 action plans illustrate that the Taiwanese IP policies already progressed from education/awareness focus to enhancing IP planning capacity for industries, legal environment and regulatory reform. However, how the government can assist enterprises reduce patent risk is still in question. In prior to the Framework initiative put into effect in 2012, the Intellectual Property Innovation Cooperation (IPIC) was established in 2011 under the sponsorship of Industrial Technology Research Institute, one of the largest nonprofit R&D organization engaging in applied research and technical services. Reviewing the history of IPIC, 3 potential challenges were found facing government's engagement in IP litigations. The WTO antisubsidy regulations comes first, and requires governments to refraining from providing subsidies to an specific enterprise, industry, group of enterprises, or group of industries in the country. It is concerned that IP bank joined/ sponsored by governments may be considered as a form of subsidies and antisubsidy tax may apply as discipline. The second challenge is derived from the supply chain complexity via which lawsuits against foreign companies for the interest of one domestic enterprise may harm another local company associated with defendants. Furthermore, the excessive capital needed to create IP poor for member companies' IP protection is a critical challenge to government funds which are tangled with a wide range of budget laws and regulations.

Program for the Promotion of Invention Patent Industrialization
發明專利產業化推動方案

          In despite of these difficulties of the IP defensive mechanism, IP licensing and planning are two more promising policy areas of common interest. Consultation, business diagnosis and education have been provided by numerous programs in the past decades and benefited abundant companies on R&D activities and internationalization. To improve effectiveness and efficiency, in 2011, the Program for the Promotion of Invention Patent Industrialization was approved as one master program to coordinate government resources on commercialization of patents invented. Several ongoing projects are involved in the master program including Taiwan Technology Marketplace led by the Industrial Development Bureau; Patent Transaction Website, by Industrial Technology Research Institute; Taiwan Agriculture TechnoMart, by the Council of Agriculture; and, IP Technology Transfer Website by the Institute for Information Industry. Furthermore, 3 Universities: National Taiwan University of Science and Technology (Technology Transfer Center); National Chiao Tung University (Technology Licensing Office); and National Cheng King University (Center of Technology Licensing & Innovation Incubator), joined in facilitating IP commercialization and technology transfer.

          Taiwan's IP policy is on the one hand reinforcing existing works on IP commercialization by numerous consultation and education projects. On the other, IP planning and IP legal protection are two emerging domain the Taiwanese government attempt to expand its services and yet in a relative early stage. Considering more than 97% of local companies are SMEs which has limited knowledge of IP rules, the government plays an essential role to familiarize enterprises with the IP order in the global trade communities. This is one important need of the government to ensure industrial competitiveness in the era of economic integration and globalization.

(Dr. Wayne Chen is the Associate Research Fellow of CTPECC and TIER)